Is no company immune from systemic underpayment?

With the recent news that the ABC has underpaid thousands of workers, even established larger businesses should not presume compliance.

A month after finding that they’d underpaid a digital news worker $19,000 over three years, the ABC has acknowledged a systemic problem – up to 2,500 casual staff have been underpaid over the last six years.

It has notified the Fair Work Ombudsman (FWO) and is working with it and the Community and Public Sector Union (CPSU) in order to conduct an urgent review. It will involve notifying current and former staff who might be affected, and finding out what went wrong at a procedural level.

The ABC section secretary at the CPSU is speculating that the cost of all the underpayments could be huge. “If there are 2,500 people affected and one individual with three years of employment under their belt was [underpaid by] $19,000, we’re anticipating the liability to be sizeable… It’s disappointing, given the ABC has repeatedly responded to our concerns by assuring us they are paying casuals correctly,” Sinndy Ealy told the ABC.

This comes at a bad time for the ABC. Their annual funding indexation is frozen for three years starting July this year, which will cost the organisation $84 million.

What makes the revelation of underpayment particularly interesting is that the broadcaster is an old institution that currently employs over 4,000 people, and it’s highly scrutinised by both other media outlets and federal politicians. Which is to say it’s incentivised to do everything it can to avoid non-compliance like this, and it should also have the experience and resources to make compliance a non-issue.

So what happened?

A culture of complacency

Late last year former Fair Work Ombudsman and current partner in advisory at Deloitte, Natalie James, spoke to the Australian Financial Reviewabout her belief that big businesses and corporate boards weren’t paying enough attention to workplace compliance.

“What really blew me away in my time as FWO was the number of larger, established, profitable businesses getting it wrong… They may have been getting it wrong for a whole range of reasons, but at its heart complacency was behind [it],” she told the AFR.

She told the paper that her FWO experiences led her to believe that a lot of boards don’t even ask for reports on workplace compliance.

Given her new position at Deloitte, which is poised to help clients with this exact issue, James’ comments should be taken with a grain of salt. But the recent ABC scandal demonstrates that her analysis shouldn’t be entirely dismissed.

Firstly because the CPSU specifically claims there was complacency. According to Ealy, the broadcaster “repeatedly responded to our concerns by assuring us they were paying casuals correctly”.

But secondly because the ABC isn’t the only larger organisation to deal with a workplace compliance issue as obvious as underpayment. After an internal investigation cosmetics giant Lush admitted to underpaying over 5000 retail and manufacturing workers, blaming serious payroll system errors (part-time employees who worked overtime were believed to be the worst affected).

And as HRM has reported previously, it’s also been an issue with larger franchise organisations, such as Caltex and 7-11. The problem was so bad for the former that it set aside $20 million to deal with underpayments, and is moving to bring all petrol stations under company control by next year.

Given the penalties, not to mention the reputational damage, a lot of organisations would be wise to raise the profile of compliance with workplace laws. While HRM has written about the importance of putting HR in the C-suite from a strategic point of view, it might also be a worthwhile move from a risk management perspective.

A culture of non-compliance

It would be nice to think that this issue was simply one of complacency. But obviously there are some organisations that deliberately underpay. Just recently two labour-hire businesses that serviced a home care company in South Australia were penalised over $200,000 (total) over a sham contracting scheme, after legal action was taken by the FWO. (Also, an owner of one of the businesses and a contractor were individually penalised for being directly involved in the scheme.)

Both companies misclassified employees as contractors, and neither sought legal advice on correct classification. The Federal Circuit Court judge, Timothy Heffernan, said doing so was a “strategic decision made substantially for the purpose of saving money”.

And sometimes whole industries have problems with underpayments. After Rockpool Dining Group were found to be guilty of underpayment, celebrity chef Neil Perry argued that almost no restaurants are compliant with workplace laws. Unfortunately, the facts suggest he’s only exaggerating a little. In a series of audits the FWO found that of 243 hospitality businesses in Brisbane, Melbourne and Sydney, 72 per cent were in breach of workplace laws.

The problem with a culture like this is that it sustains itself. When so many businesses in an industry aren’t compliant, its workers are even less likely to realise something is wrong with their individual situation. It’s a different and more depressing version of “systemic underpayment”.

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A James

It would help if the regulations were clearer and simpler. As an HR professional I can barely decipher some Awards; how do we expect your average business owner to manage? Sometimes businesses are non-compliant because they simply don’t know the intricacies of the rules. I think it’s time to simplify. Of course I’m talking about small businesses here, there’s little excuse for companies who have in-house HR teams.